Transportation Executive Summary: U.S. DOL Issues Final Rule Under the Fair Labor Standards Act
In October of 2022, the Department of Labor (DOL and Department) published a Notice of Proposed Rulemaking (NPRM) regarding the 2021 Independent Contractor Rule which went into effect in March of 2021. The 2021 IC Rule was unaligned with the Fair Labor Standards Act’s (the Act) language and purpose, and was a change in the Court’s application and analysis of the Economic Realities Test (ERT) which has been used since the 1940’s. We reported on the rule here.
The same four major changes from the NPRM are presented in the final rule, along with some other minor modifications stemming from 55,440 comments on the proposed rule. The final rule can be accessed here, and will go into effect on March 11, 2024.
First and foremost, the DOL concluded it was appropriate to rescind the 2021 IC Rule, and use this (new) final rule as the analysis for determining employee or independent contractor status. The Department felt this route was more “consistent with existing judicial precedent and the Department’s longstanding guidance prior to the 2021 IC Rule.”1
In addition to rescinding the 2021 IC Rule, the DOL is adding part 7952 which includes the framework and guiding principles for the new rule. In part 7953, are the modifications previously mentioned in the NPRM. The new rule includes such modifications and more, including returning to a totality-of-the-circumstances analysis of the ERT factors, including investment as its own factor, and including the integral factor which looks to whether “work performed is an integral part of the employer’s business rather than an integrated unit of production.”4 The final rule also includes “broader discussion of how scheduling, remote supervision, price setting, and the ability to work for others should be considered” when evaluating the control factor, and “it allows for consideration of preserved rights while removing the provision of the 2021 IC Rule that minimized the relevance of retained rights.”5 Last, the final rule includes discussion of exclusivity when it comes to the permanency factor, as well as initiative when it comes to the skill factor.
The additional modifications include changes to language used to remedy confusion pointed out by comments on the proposed rule. Fore example, language was changed in the control factor portion to address concerns that “control implemented for purposes of complying with legal obligations may be indicative of control generated many comments.”6 Additionally, commenters expressed concern that “the investment factor directed the Department to consider relative investments of the worker and the potential employer,” so the Department is adding further clarification that “consideration of the relative investments of the working and potential employer should be compared not only in terms of dollar value or size of the investments, but should focus on whether the worker is making similar types of investments as the employer (albeit on a smaller scale) that would suggest the worker is operating independently.”7 Also regarding the investment factor, the Department is adding language addressing the fact that costs unilaterally imposed are not indicative of a worker’s capital or entrepreneurial investment as a response to commenters concerns.8 Last, some minor clarifications and adjustments to the regulatory text are made to reflect a range of comments made by workers impacted by the rule.9
The final rule reiterates that part 79510 contains sections including one discussing the Department’s general interpretations for determining whether workers are employees or independent contractors under the FLSA,11 a section reiterating that economic dependence is the ultimate inquiry,12 a section explaining the ERT, its six factors, and how they should be used,13 as well as a severability provision.14
As noted earlier, one of the main changes reintroduces the totality of the circumstance’s analysis. This means the six factors should be used as a guide during a Court’s or other party’s assessment of the economic realities of the working relationship, but no one factor or subset of factors is necessarily dispositive.15 The six factors include (1) opportunity for loss or profit depending on managerial skill, (2) investments made by the worker and the potential employer, (3) the degree of permanence of the work relationship, (4) the nature and degree of control, (5) the extent to which the work performed is an integral part of the potential employer’s business, and (6) skill and initiative.16 As has always been the case, additional factors may be considered if they are relevant to the overall question of economic dependence.17
The Department believes this (new) final rule will serve as consistent guidance to employers, Courts, and other party’s as they determine a worker’s classification, and to workers who determine whether they, themselves, are correctly classified. The Department maintains this final rule will better prevent misclassifications and protect employers and workers from the consequences of misclassification. Of course, actual implementation of the rule remains to be seen.
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For more information on trucking and transportation matters, contact John F. Fatino at (515) 288-6041. Abigail Goulding, Drake University Law School J.D. candidate, assisted in the preparation of these materials.
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1 Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1638, 1639 (Jan. 10, 2024) (to be codified at 29 C.F.R. pts. 780, 788, 795).
2 29 C.F.R. § 795.100–.115 (Effective Mar. 11, 2024).
3 29 C.F.R. § 795.100–.115
4 Employee or Independent Contractor Classification, 89 Fed. Reg. at 1639.
5 Id.
6 Id.
7 Id.
8 Id.
9 Id.
10 29 C.F.R. § 795.100–.115
11 29 C.F.R. § 795.100
12 29 C.F.R. § 795.105
13 29 C.F.R. § 795.110
14 29 C.F.R. § 795.115
15 Employee or Independent Contractor Classification, 89 Fed. Reg. at 1640.
16 Id.
17 Id.